- The US economy added 178K jobs in November, up from 142K in October
- More surprisingly, the unemployment rate fell to 4.6% from 4.9%, the lowest level in 9 years
- Despite robust hiring, there has been some cooling down in wage growth, as it fell to 2.5% from 2.8% yoy
- With the labour market tightening, wage growth is likely to re accelerate
- This means that a stepping-up of the pace of Fed rate hikes is likely
- After December’s rate hike, we expect from the middle of 2017 three hikes
Nonfarm payrolls gain in line with year average
Nonfarm employment increased by 178K in November, following a downwardly revised 142K gain in October. Meanwhile the unemployment rate fell to 4.6% from 4.9%. This is the lowest unemployment rate in more than 9 years. The details of the report point to a slight fall in the participation rate (62.7% was previously 62.8%). This implies that the amount of workers that are actively looking for employment declined somewhat. This is the second consecutive month that the participation rate declines. In contrast, workers working part-time, but looking for a full time job continued to fall to 9.3% in October from 9.5% the previous month. This is a sign that labour underutilisation is diminishing.
Job gains in business services continue to trend up
The private sector added 156K jobs in November, while the government reported a 22K increase. The details show that employment in major good-producing (including mining) industries and construction picked up slightly, while manufacturing remains depressed. Although the latest data suggest that activity in the manufacturing sector is improving a bit, it remains far from robust. This year, the manufacturing sector has been cutting jobs since August. A strong dollar represents a renewed risk for the sector. President-elect Trump has offered to bring back jobs to the manufacturing sector in America. Professional business services, the main driver of the labour market, continued to trend up, adding 63K jobs.
Wage growth accelerates
Despite robust hiring, there has been some cooling down in wage growth in November. Wage growth declined by 0.1% mom from 0.4% the previous month. The annual increase of average hourly earnings was 2.5% in November, down from 2.8% the previous month. With the labour market tightening wage growth is likely to re-accelerate. On top of this, in the coming quarters GDP growth is expected to remain strong, at above trend growth.
Jobs report supports a faster pace of rate hikes in 2017
A strong labour market should give Fed officials significant confidence for a rate hike in December. It also suggests that the pace of rate hikes will accelerate later in 2017. We expect three hikes next year (June, September and December). The positive economic data, including Q3 GDP growth, and the expectation that inflation will rise to 2% over the medium term as a result of the stimulus supported by the new Administration, together with higher energy prices will likely require tighter monetary policy compared to the current stance.